China retaliates as trade war starts

Danielle Paquette and Emily RauhalaThe Washington PostWP Bloomberg

Friday

Jul 6, 2018 at 7:25 AM

BEIJING - Three months of rhetoric just became reality.

The United States imposed the first duties on $34 billion in Chinese goods early Friday and China immediately retaliated, launching a commercial battle that analysts fear could shake markets and cramp global business.

As Beijing fired back with tariffs of its own, it accused the U.S. of violating WTO rules and setting off "the largest trade war in economic history to date."

"In order to defend the core interests of the country and the interests of the people, we are forced to retaliate," the Chinese Commerce Ministry said in a statement.

The Asian nation slapped levies on an equal amount of American goods, including heartland staples like soybeans, corn, pork and poultry - a move President Donald Trump said would compel him to hit China with another round of duties on up to $500 billion in products.

The financial jousting prompted worry that the cost of a wide range of goods to soar.

"For industries that are directly impacted by the tariffs, the impact will be immediate and big," said Yanmei Xie, a China policy analyst at Gavekal Dragonomics, an economic research firm in Beijing.

But it's the risk of escalation - specifically Trump's $500 billion dollar threat, which would cover nearly all of China's exports to the U.S. - that has analysts worried. "The countdown is on as to what Trump will do next."

On the Chinese side, fallout from the first round of tariffs was seen as tough but manageable.

"The key is whether there will be more - a second round of revenge and retaliation and a third round," said Shi Yinhong, a professor of international relations at Renmin University in Beijing.

Despite frustration with Chinese trade practices, which require foreign firms to spill trade secrets to access the 1.3 billion-person market, U.S. businesses have warned for months that Trump's trade threats may do more harm than good.

"There are no winners in a trade war," William Zarit, chairman of the American Chamber of Commerce in China, said in a statement published just moments before the 12:01 a.m. Washington-time deadline.

"While our 900 member companies continue to suffer from not having a level playing field in China, they are still extremely clear: Increased tensions in the U.S.-China economic relationship will negatively impact their operations in China," he said.

Some veteran China observers predict Beijing's tactics may go beyond tariffs to include arbitrary quarantines and a costly uptick in customs inspections, among other regulatory headaches.

Shaun Rein, managing director at the China Market Research Group in Shanghai, said the Chinese government's next play could be to stoke anti-American sentiments among consumers - similar to the boycotts it ordered last year on South Korea's Lotte Group, which caused dozens of the company's convenience stores to shutter.

"If I was Starbucks or Apple," he said, "I would be scared right now."

Trump has vowed for years to tackle Chinese trade practices, accusing Beijing of stealing U.S. intellectual property and slammed the $375 billion U.S. trade deficit with the country.

He argues that China should purchase more American goods, and has blamed trade with Beijing on the loss of American jobs throughout the Rust Belt. (Economists say both globalization and the rise of automation shrank the kind of manufacturing operations that U.S. companies in recent years have shuttled abroad.)

At a rally Thursday in Montana, Trump doubled down on his stance that China is "killing us" on trade.

Chinese officials, however, are projecting studied confidence, asserting the Asian nation is better equipped to withstand the turbulence.

"Our commodity market and job market are relatively flexible, and our foreign-related economic sectors' ability to make flexible adjustment is more prominent," said Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, in an interview Thursday with the Chinese financial newspaper Financial News.

The Chinese side sees Trump's threats as an attempt to hold back its economic growth - and has vowed to match them move for move.

"Whether it's through trade war or other means, the end goal is to make China subservient to the United States," said He Weiwen, vice president of the Center for China and Globalization, in Beijing. "That's impossible. China won't accept that," he said, adding "what happens next depends on the United States. China will be prepared to follow suit."

Meanwhile, at both American and Chinese ports, cargo ships are docking to a new world of financial consequences.

The internet watched one vessel's journey to the port of Dalian in Liaoning province. Peak Pegasus, which carried soybeans, sped to reach its destination Friday morning before China applied tariffs that would hike the cost of its load by 25 percent.